Housing Bubble Exists Regionally

Contrast real estate in Los Angeles with that in Milwaukee, for example. For a number of years, Shiller has been conducting surveys of attitudes towards real estate in several cities, including these two.

One of the questions his survey asks: "On average over the next ten years, how much do you expect the value of your home to change each year?"

In the latest survey, respondents in Los Angeles on average said 22.5%, while those in Milwaukee said 13.4%.

Regardless of whether you think these numbers in an absolute sense reflect a bubble mentality, I think we can agree that the expectations of Los Angeles residents make its real estate market far more vulnerable to a crash than Milwaukee's.

link

was regional. It's subscription only -- so I can't link to it. www.consumerreports.org

DC real estate has skyrocketed in every area. Baltimore is starting to go up, but is nowhere near other eastern cities.

You can still get rowhouses in Baltimore for $20,000. They may not be in good neighborhoods and may not be in good shape, but the same houses in northeast DC would be $150-200,000.

You mean $120K, right?

While I do not live there anymore, Baltimore is very segregated. I love Balto but the area you link to is very much in transition. I'd be careful.

Not as bad as East St. Louis, but if you bought that house you'd see why it's actually easier to pay to tear 'em down than it is to try to sell them.

If you like crack dealers as neighbors 20K buys the cheapest house in many major cities. Usually available for the back taxes and unihabitable as is.

OK,maybe a studio condo or if you have some kind of back channel for purchasing them.

about 60 miles from NYC. Couple of brand new developments. 3 bedrooms with a quarter acre, listed at $700,000 and over - former farm land.

Although LA has a couple of things driving its real estate market that Milwaukee doesn't. First, population growth. Between 1960 and 2000, LA county's population increased from 6,000,000 to almost 10,000,000; growth of around 66%. Milwaukee's has increased from 1.3 to 1.5 million--a much smaller percentage. There's also been a big wealth boom in LA, and a trend toward ever more conspicuous consumption. Milwaukee's housing boom may actually be more dependant on a low-interest environment than LA's, becuase it doesn't have other drivers to fall back on. So there.

I have no doubt about a bubble here in San Diego. It was just reported on the news yesterday that the average sale price of a home in San Diego for the month of April 2005 was $500,000.00....1/2 a million dollars!!! This is crazy! A lot of these homes are 2 or 3 bedroom, 1 or 2 bath craftsmans built in the 20's & 30's. When it burst a lot of people are going to be in a bad way.

1. Yes housing prices are ridiculous, but we have one of the most environmentally conscious states in the nation. As such, there is a real lack of new housing (vs demand) that is not seen as much in other regions. State and local govts make it very hard for a contractor to secure land and build new subdivisions.

2. Also, those of us who are established and own homes, are very wary about lots of new construction. We would rather see prices continue to climb because our equity grows. Those who can't afford a place of their own have every right to complain, but just imagine the screaming you would hear from current home owners if home prices began to fall.

As long as there is substantial pressure to prevent building, prices will continue to rise.

who would the current homeowners be screaming too, exactly? and what would they expect to be done about it? force people to ask for more money for their home?

I think that it would take a MAJOR economic downturn or an ice age to cause the san diego and SoCal real estate market to tank- it's the weather...you don't get san diego caliber weather anyplace else on the mainland, and as the population grows, the amount of available land stays the same.

You have some valid points, but at some point pretty much everyone will be priced out of the market. Wages in SD in general are not on par with similar urban areas. If no one can afford to buy your home when you want to sell it, then what good is your equity other than a means to get you more in debt?

This is probably a pointless discussion because people who are emotionally invested in not seeing a bubble -- simply will not see a bubble.

Given that . . .

1. Speculative behavior. Significant numbers of people buying income property at higher and higher prices believing that there is NO WAY they could lose money.

2. Real Estate prices greatly exceeding historic appreciation and afford-ability standards.

Also your argument that demand vs. ability to build will keep prices high -- explains why CA is more expensive that say -- Oklahoma, but it doesn't explain why a sudden surge in prices during a time when demand because of people moving into the state is actually down.

But hey, no one believed me about the dot-com bubble either. Even though I saw that one coming, first hand. People just can't see the forest through the trees.

But that's the nature of speculative investing, which is what makes a bubble.

Granted, that is changing, and there will be a slump in the real estate market sooner or later. However, if rates rise slowly enough, I don't see prices plummeting. It is likely that they will go flat-line for some time. The thing is that if they just go flat, the sales pitch will be buy before prices start rising again.

The ONLY way I see CA house prices tanking is if there is a continued mass exodus of jobs and hence people from the state. That would soften the demand and bring prices into check.

some areas (like ours, an outlying area of SF Bay) -- historically enjoyed much lower prices than SF and closer suburbs -- now are looking at prices equivalent too the rest of the bay area. 200K to 250K house now worth 550K to 700K in just a few years. I expect areas like ours will drop more esp at the low and high ends of the market.

Our area can't support those prices. We have a specialized local economy where most people either work-in or in support-of and many of the housing buyers around here have been investors from in and out of the area trying to make a buck on income property. It will be interesting to see what they do if/when the prices drop. Rental prices (what it costs to rent) are dropping.

In the CR report I mentioned earlier -- our area was one of the most "over-valued" in the country.

What am I saying here: real estate IS local.

The loss of tourism following 9-11 and the general recession didn't help matters either.

I recently read that there was an unexpected gain in the state's budget; I wonder how much of this is due to the housing market?

Of course housing bust will hurt the budget.

being built in California. They're in the valley, but they're being built. Blaming the California Environmental Quality Act is a nonstarter. Projects are much more likely to wither on the vine due to the Endangered Species Act or some other federal law.

Blaming local governments is also a nonstarter. Out in Fresno, Shasta, Merced, Hanford, Sacramento, and ALL OVER the valley cities and counties can't wait to build up more sprawl. They LOVE sprawl.

I don't hear a lot of people saying "I really want a house built on drained swampland thirtymiles from my employer that looks just like the neighbors except the stucco is a different shade of tan" but that's all that gets approved for construction around here, so that's what people get. Crackerbox developers might as well put thier names on the county letterhead, because they get to make all the decisions.

In Calif, houses are losers for local gov in terms of revenue vs cost to serve. Since Prop 13, local gov does not encourage new housing development - unless in the upper-middle to higher income categories. Thus, supply, especially, in the income categories of most working people is held down. Supply down and demand up = higher home prices. Add to that, that planners and environmentalist DO restrict new housing development. Especially, for those folks who already own a house, it is in their own economic interest to promote, slow, or managed growth or to out right restrict new growth of housing markets, as it increased their personal home equity.

Further, immigration - legal and illegal (not well quantified) has placed substantial pressure on the housing market in Calif. As long as new populations keep coming into Calif from other countries, demand for housing will stay up and so will prices!

The last downward pressue on housing prices in Calif was in 1991, as the result of military bases closing and reduced federal spending on the military. Southern Calif areas saw up to 10% decline in home values. The recession of the early 90's kept prices flat or only slightly increasing until mid-90's. Even with the dot-com bust of late 90's, early 2000's housing prices in Calif have kept going up, in particular int he new growth areas of Riverside, San Bernadino counties, the San Joaquin Valley and Sacramento region. Placer County, next to Sacramento is the one of the top regions in the state for growth, housing appreciation and the new center of the Republican Party in Calif.

A true national depression though, will burst the housing bubble!

developments. You have OVERDEVELOPED and destroyed the area. Don't talk to me about how hard it is to get your damned permits. Looks like it's pretty easy to me.

homes being built are McMansions for a million and up. I think it would be healthy to go back to the days of new homes being built for ordinary working people. They've now been priced out of the new home market entirely and are sticker shock victims when shopping for well-worn fixers that are going for over a half mil.

I've been in my home for 30 years and own it free and clear. I wouldn't mind a bit if prices started to fall. People like me can't "move up" in this market now because the property taxes would kill us.

Here in Minneapolis and St. Paul, that's about what a home of that description goes for in the right neighborhoods, but most of these older 1920's and 1930's Craftsmen homes ARE in the right neighborhoods because those old neighborhoods are located around the lakes in town, etc. and have always been in high demand. These will probably hold their value. The homes in the suburbs are more vulnerable.

It's wierd.. reminds me of that whole peak oil thing. What's up with 10 threads on housing bubbles all over DU this week????

No housing bubble here where I am..

florida. this is an area that was undervalued for years and now it's skyrocketing. as i researched what to do with the property i found an interesting tidbit on Why The Increase?

people from all over the world are taking money out of paper investments and forming investment groups that do nothing but collectively buy property in areas that are either undervalued (sure bet that undervalued beach property would increase) and high value, dense population property (b/c in dense, high value areas, even if the structures are lost, your land will increase).

i asked, WHO, who are these people? i got all kinds of answers. Begians... Canadians... people from out west, people who were just account numbers on paper -- they aren't actually going to these places and saying, i'd like to retire there -- there IS some of that -- but the BIG picture has to with with shifting funds to "real" property as a hedge against falling markets.

Lots of movement in high-density inner city/downtown areas with lofts, older houses coming down and new ones being built...etc.

First and second string burbs and outlying areas with no "natural land features" or good transportation or high-value commercial real estate close by are more vulnerable, as areas that never had high value to begin with.

Real Estate Investment Trusts? Or other vehicles?

nashville_brook says:

who are these people? i got all kinds of answers. Begians... Canadians... people from out west, people who were just account numbers on paper -- they aren't actually going to these places and saying, i'd like to retire there -- there IS some of that -- but the BIG picture has to with with shifting funds to "real" property as a hedge against falling markets.

The last time the dollar plummeted as it has under GWB was during the latter half of the second Reagan administration. Anywone remember the Plaza Accord? The (was it then) G8 central bankers and magistrates met in NYC's Plaza Hotel in 1996 at the bidding of James Baker (yes that James Baker) to fix the currency markets to devalue the dollar from its Reagan deficit-driven highs. The result was the dollar plummeted uncontrollably (a dollar bought something like 256 Yen prior to the Plaza, but shortly after could only capture 89 Yen).

A direct result of these currency manipulations was that America appeared cheap to the rest of the world. Whereas at the start of the Reagan administration we owned 3.7 times more of the rest of the world than they owned of us, by the end of Reagan II the world owned 0.8 times more of us than we owned of them. Quite a sea change in financial arrangements!

What happened? Foriegn capital snapped up comparatively cheap real assets, from Radio City Music Hall to company after company. The result is U.S. democratic soveriegnty eroded a degree and all here now increasingly dance to the whims of the international investor class.

We in effect bought a real prosperity for our upper class and a kind of prosperity for the rest of us by selling off our assets. Is this what is happening today? And without the same "rosey" results of Reagan II?

(Note the use of quotes around "rosey": These same market manipulations contributed to the Savings and Loan scandal during GHWB's reign -- what we saw during Reagan/Bush was a giant party held for the denizens of global boardrooms and when it was all over the average U.S. citizen was left with the bill -- I've seen this same scenario, with many parallels I don't mention here, play out again under GWB's stolen reign.)

Plaza Accord was not 1996, it was 1986. Big difference.

I wouldn't mind so much, if the after-effects weren't so rough.

House prices skyrocket (median 148k to about 300k in a couple of years)
--->

All new condo construction becomes "luxury"...300k minimum.
--->

Rental properties are descended upon by investors, who then convert them to condos.
--->

Rental prices skyrocket.
--->

Oversaturated market? Well then, some real estate investors rent out condo units...at luxury prices. 1500 a month or more.

Where, pray tell, will the service employees that the wealthy rely upon live?

goddamn my wasteful youth. In '98 I was eyeing a condo for 26,000$, old and dingy, but not lacking in space and in a decent location (about a mile away from Kerry's FL HQ for any volunteers who were down here). Now it't going for 80k.

Aaaargh. I really don't want to move to BFE Florida (no offense, my upstate brethren ;)

Folk smarter than me will argue bubble or no. But LA is a mess.

People in LA on average spend 96 hours waiting in the highway traffics.

The highest in the country.

What a mess.

...to justify continued anticipation of huge gains from real estate investments.

"So long as I'm not in LA, SF, DC or Boston, I'll be OK."

It'll be interesting to see if that works.

It might be like saying, "so long as I'm in Enron and not Amazon, my 401(k) is going to be fine" in 2001.

and that is it being hyped by Wall Street to convince people to invest in stocks and bonds instead of RE--or perhaps they'd be okay if we invested in REITs?

Here's the report that redacted mentioned:

http://www.consumerreports.org/main/detailv4.jsp?CONTENT%3C%3Ecnt_id=579825&FOLDER%3C%3Efolder_id=162679&bmUID=1116031019173

You don't need a subscription to see it, but I'm not sure if that URL will work. If it doesn't just go to http://www.consumerreports.org, click on "Personal Finance", and then "National Housing Markets".

...

opposed to homes bought by those planning to live in them. Florida seemed to be a big spec. area. So was parts of Arizona. I am under the impression that if the economy takes a hit, whether its oil, terrorism, bad economic indicators or a combo of all of them, there will be a quick shake out of those specualtors who are inexperienced, nervous or whatever. They have already made some money.

Also, a factor which has not been mentioned which is no doubt keeping the housing market strong is the low dollar that foriegn investors now enjoy. In the past, when the dollar was low, foriegn investors came in and got great deals but when the dollar rose, they could not handle the carrying charges/taxes of their properties, causing a big mess.

Let's see how they handle it.

i believe zero what the CONs sift out into their propaganda machine. I live in So Cal but if I was a gambling man, I would sell here and buy land elsewhere. Not for the that any property is overvalued but rather that many places are undervalued and getting more that way everyday.

If you have some way of factoring in the real inflation rate (if you can get an accurate view of it) as compared to the stated publicized rate, then a clearer picture might emerge

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I'm in the process of buying my first home, here in central (semi-rural) Missouri, and I was told to expect about 3% appreciation of home value each year. Prices have definitely gone up since I first moved here 11 years ago, but it's nothing like LA, where my mother still lives. She hasn't had her property appraised recently, but much smaller houses in her neighborhood are selling for $500,000. 30 years ago my parents almost sold that home for $35,000.

but it's not going to be a pop, just a slow leak for a period of years. The thing that's propelled housing prices upwards over the last fifteen years is declining interest rates. That party is over. Rising rates will suck up more of a family's income for interest payments, leaving less for principal payments, and leading to not being able to afford as much house. If interest rates reach double digits (I thought I had a good deal when I got a 10.5% mortgage back in 1979!), it will cost at least $3000 a month to buy a $300K house. Since you have to make at least three times your house payment in order to qualify, you'll need a LOT of $9000 a month family incomes to afford them. It just ain't gonna happen, even in La-La Land.

The other effect of rising interest rates is to shove more houses on the foreclosure market. People have been folding their credit card debt into their home mortgages for a long time now. As interest rates declined, it was painless to do so, but like I said, that party's over. It won't make sense to refi credit card debt, as your new mortgage payments might be HIGHER than your old house payment plus your debt service on the Visa and MasterCard, so you just have to struggle through. Some will not be able to make it, and bam, the old homestead winds up on the foreclosure market.

Since lenders have a vested interest in seeing foreclosed homes keep their nominal "value", they won't discount the prices much, but they will discount the hell out of any in-house loans they make to get someone else in there, and will pay a LOT of closing costs to put a new borrower in the place. That doesn't get reflected in housing prices, so there's a "flattening" effect. Truth is, there's a deflationary effect, and why should I buy your $250K house (with full closing costs, and a double digit unsubsidized mortgage), when ABC Bank is willing to sell me a $250K house with no money down, no closing costs, and a cheap (at least for a year or two) mortgage? You won't get $250K, you might have to settle for $225K, or less, and that depresses prices in the housing markets.

Folks, before I was laptoprepairguy, I was title insurance guy (for 25 years), and I've seen these market cycles over and over.

I thought I was crazy buying it six months ago for 365K. For reference, I'm in the San Jose area. There will be no real building in this area for quite a while so baring a nationwide economic collapse, I expect things to continue to rise even if it is at a slower rate.

And, San Mateo county went up 19% from last year...median price now at $700,000 +.

:wow:

a little over a year ago, needed to cash out the house due to court crap and trying to run self managed web stuff..

I told my wife, "Hey, let's have a look at Hawaii - nice folks, nice weather, beautiful surroundings, long life span, etc.."

So we moved here. Had we purchased a few condos a year ago at $250 K, we could now sell them for $525 K TODAY.

This place will Never go down - sure it crashed once in the 80's due to the Japanese sucking everything up and pushing up prices (Bush Senior/Reagan dollar daze), but when the Japanese economy collapsed then they sold CHEAP.

The house we bought for about two thirds of the sale price of our home in Cal actually increased in value $100 K BEFORE WE CLOSED.

I am of the opinion that Hawaii (maybe like the Island of Maui) will become total gated communities of the intensely wealthy - the whole freaking Island, if you don't have a million in the bank account (unless you are a tourist) then you won't be allowed to hang out here - won't be anything you can BUY.

I would advise anyone in Calif (or any other potential bubble area) to bring your bucks HERE. Resorts (and these Islands are RESORTS, don't let anyone fool you) DON'T decrease in Value.

Come on in, the water's fine. As a matter of fact one of our sidelines at the moment is the Ultimate Maui Guide, a complete listing of every condo on the Island of Maui which is very detailed and will be a godsend to anyone looking to buy here, complete with detailed pics of all the properties as well as me generating DVD's of exclusive listings with our high definition cameras (we may well be shooting a 20 million dollar mansion that belongs to the star of the TV show Kelsey Grammar - a freaking right winger, but I'll take his money on a house sale :) )..

The quality of life here is wonderful, and it's on the very edge of the Bush EMPIRE. Let's face it, who's going to whack Maui? What purpose would that serve.. that was another factor for leaving Calif, if the "terrorists" happen to be NeoCons then an obvious choice for them would be to create another attack - ten bucks says it will be in a Liberal area..

Not Maui. So we figured it's a great place to park money, watch it grow, enjoy life, make our friends and family jealous (even tho it's CHEAPER to buy here than Calif) and know that the RICH are not going to attack their own RESORTS :)

If anyone wants a great book on ALL the Condo's on Maui they can contact me in a PM and I'll see that they get one - great reading while sitting in a place with snow up to your waist and thinking about how many 45 year old men die each winter shovelling their driveway :)

People live to the ripe old age of 80 or so here and in some ways it's like stepping back in time about 30 years, friendly folks, actual and REAL family values, etc

Except for a REPUG Gov here, everything else is democrats and Progressives as well.

We should just secede from the Bush Fascist Machine and trade sugar for oil while remaining neutral :)

It really IS Paradise. The only Bubbles I'm interested in over here are the bubbles the Humpback Whale's make when they clog the passage between the Islands :)

I lived in Oahu for two years, Had a house in Mililani Maku great brand new 3 bedroom house for 240K had to move back to Ca due to a terminal illness in the family sold it for 270K. Bought a 40yr old 3 bedroom house for 260K in LA suburbs. A year after the death of my in-law looked into moving to Mexico. Sold it for 405K two and a half years later. Moved to Mexico bought a brand new 3 bedroom house w/pool for about 115K around the corner from the Governors new house paid in cash! Now living off my military retirement on a FM3 Retiree Visa. No more Mortgage payments just water electricity etc. I would hate to see a bubble burst in LA but the market there is to crazy and Realtors are doing everything they can to get people to buy or sale. Turns out that living in Hawaii was a little cheaper than LA for me, possibly due to commissary benefits that made food bill less. Not the same for Maui I was there in 03 very expensive as far as food is concerned. As for bubbles, the ones I liked were the ones coming out of my reg as I went down to the bottom on a dive But I can do that here too! The water in Cancun is great just as clear as Hawaii!

You can pay cash for a mansion there at very low rates and live like a king until the end of your days..

BUT, and this is what scares me about Mexico or other countries - when someone ELSE becomes the glorious leader of the week there then they might decide they like YOUR land and home better than theirs, and simply send troops to TAKE it...

I just can't trust them. Had a cousin thrown in their jail back in the 70's and if you couldn't afford food you starved. My uncle had to mortgage his home, fly down there and spend a huge amount of money BRIBING a lot of people to get the poor kid out..

However, I have heard that the medical and dentists are cheapers by a long shot and also better in some regards, not to mention that if you walk into a drug store and ask for the pain meds YOU require (as a chronic Pain Person I don't like the feds scaring the crap out of the doctors here if they give you what you may actually NEED for quality of life) the Mex's will give you what you want at a decent price.

I predict an exodus from the USA because of the right wingers here - the germans lost their best scientists and the smart jews with some money got the hell OUT in the early 30's.

The parallels are striking, esp with the new NATIONAL ID card and the Xraying of passengers at airports coming up.

One thing I have been telling my pals for the last two three years is to pick out the place they want to live for the rest of their lives as they may actually be forced to STAY there when it gets bad (AMtrack being cut, TSA Jackboots feeling up your wife or some old lady, etc)..

But it sounds like you are all set and very nice. We may still yet rent out the house here, take some savings and get a place in Mexico and see how it goes.

Lots of freedom down there, but also Federales with big guns running around.

of course that will and is happening here in the USA as well.

I'll take paradise, be it Hawaii or Mexico.

One good point about Hawaii is, if the Neocons or the Terrorists (and they may be cut from the same cloth anyway) decide to turn loose something like a mutated small pox strain that gets out of control then here in the Islands we could easily cut off all contact, refuse incoming planes, etc and sit here and wait it out while the whole world gets sick.. munching on fresh fish and bannanas from our seas and yards.

It's not that impossible a scenario and one of many I feel we can avoid easily here in one of the most isolated spots on the planet.

Good luck with your new life there, sounds glorious :)